Zhongcheng Holdings Pty Ltd v Grand Orchid 21 Pty Ltd

[2025] NSWSC 1224

Supreme Court

New South Wales

Medium Neutral Citation:

Zhongcheng Holdings Pty Ltd v Grand Orchid 21 Pty Ltd [2025] NSWSC 1224

Hearing dates:

27, 28, 29 May 2025

Date of orders:

17 October 2025

Decision date:

17 October 2025

Jurisdiction:

Common Law

Before:

Rothman J

Decision:

(1)   Judgment for the plaintiff.

(2)   Dismiss the cross-claim.

(3)   Plaintiff to bring in short minutes of order reflecting the orders at paragraph 194 and following with leave to issue a response in accordance with those paragraphs.

Catchwords:

CONTRACTS — breach of contract — default by borrower — enforcement of guarantee — development of hotel in Surfers Paradise — contract interpretation — intention to create legal relations — whether no signature affects validity of contracts — whether the assignment was valid and enforceable — whether there was a breach of the loan and/or mortgage — whether the plaintiff is entitled to rely upon the guarantee

CIVIL PROCEDURE — cross-claim — against plaintiff — breach of duty — Corporations Act 2001 (Cth) s 420A — Property Law Act 1974 (Qld) s 85(1) — plaintiff took reasonable steps to sell for market value — whether funds were unavailable in breach of facility documents — misleading or deceptive conduct — unconscionability

Legislation Cited:

Australian Securities and Investments Commission Act 2001 (Cth), s 12CA

Corporations Act 2001 (Cth), ss 9, 420A, 424

Property Law Act 1974 (Qld), ss 84, 85

Cases Cited:

Abigroup Ltd v Sandtara Pty Limited [2002] NSWCA 45

AGC (Advances) Ltd v West (1984) 5 NSWLR 301

Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570; [2008] HCA 57

Alonso v SRS Investments (WA) Pty Ltd [2012] WASC 168

Artistic Builders Pty Ltd v Elliot and Tuthill(Mortgages) Pty Ltd [2002] NSWSC 16

Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1; [2019] HCA 18

Butcher v Lachlan Elder Realty Pty Limited (2004) 218 CLR 592

Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304

Clark Equipment Credit of Australia Ltd v Kiyose Holdings Pty Ltd (1989) 21 NSWLR 160

Commissioner of Taxation v Reliance Carpet Co Pty Limited (2008) 236 CLR 342; [2008] HCA 22

Investec Bank (Australia) Limited v Glodale Pty Ltd [2009] VSCA 97

Katsaitis v Commonwealth Bank of Australia (1987) 5 BPR 12,049

Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited (2007) 233 CLR 115; [2007] HCA 61

McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457; [1933] HCA 25

Moschi v Lep Air Services; Lep Air Services v Rolloswin [1973] AC 331

Naas (Lady) v Westminster Bank Ltd [1940] AC 366

Photo Production v Securicor Ltd [1980] AC 827

Pratap v Permanent Custodians Ltd [2013] NSWSC 1918

Rail Corp (NSW) v Leduva Pty Ltd [2007] NSWSC 800

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52

Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632

Category:

Principal judgment

Parties:

Zhongcheng Holdings Pty Ltd (Plaintiff)
Grand Orchid 21 Pty Ltd (First Defendant)
W A Roddenby (Second Defendant)
G W Bell (Third Defendant) (self-represented)

Representation:

Counsel:
C D Freeman (Plaintiff)

Solicitors:
MGA Legal (Plaintiff)

File Number(s):

2023/215817

Publication restriction:

Nil

JUDGMENT

1. HIS HONOUR: The plaintiff, Zhongcheng Holdings Pty Ltd (hereinafter “the plaintiff” or “Zhongcheng”) sues the defendants for $9,740,000 plus interest and costs. The proceedings arise out of foreclosure on a mortgage in relation to a proposed development on the Gold Coast, which development did not proceed.

2. The first defendant, Grand Orchid 21 Pty Ltd (hereinafter “Grand Orchid”), is the registered proprietor of property situated at 21 Orchid Avenue, Surfers Paradise. The second defendant, Wayne Anthony Roddenby, was a director of Grand Orchid from 25 November 2015 to 5 April 2017. The third defendant, Gregory William De Courcy Bell, was a director of Grand Orchid from 5 February 2016 to 25 September 2017.

3. On or about 11 March 2016, Grand Orchid and Royal National Capital Alliance Limited (hereinafter “RNCA”) entered into a series of agreements including a Deed of Loan, a Mortgage, a General Security Deed and a Deed of Guarantee (referred to collectively as “the Facility Documents”).

4. By the Deed of Loan, RNCA agreed to provide a facility of $39 million to Grand Orchid on the terms set out in the Deed of Loan and in the Memorandum. The Deed of Loan was secured by a mortgage over the property in Surfers Paradise on terms and conditions set out in the Mortgage, as one would expect. The Mortgage incorporated the provisions of the Memorandum and was signed by the second and third defendants.

5. The General Security Deed (hereinafter “GSD”) is a deed binding on RNCA and the second and third defendants by which all the defendants in these proceedings charged their assets to secure the facility on the terms set in the GSD and the Memorandum. The Deed of Guarantee is between RNCA and the second and third defendants by which the defendants guaranteed the obligations of Grand Orchid on the terms set out in the Guarantee and in the Memorandum.

6. As earlier stated, pursuant to the Loan Agreement and Mortgage, RNCA was to provide a facility of $39 million to Grand Orchid. By 8 March 2018, RNCA had advanced the sum of $15,191,116.43 of which Grand Orchid was to repay $14,740,000 by 23 May 2018.

7. On 23 May 2018, RNCA assigned its right, title and interest in the debt, assigned loan, transaction documents and securities to Zhongcheng, the plaintiff in these proceedings. On the same date, RNCA gave notice of the assignment to Grand Orchid. Zhongcheng gave notice to all three defendants on 13 June 2018.

8. Zhongcheng claims that, in contravention of clause 219 of the Mortgage, Grand Orchid did not pay the Secured Monies to Zhongcheng on the repayment date or at all. The Secured Monies includes $9,740,000, which is the claim before the Court, and Grand Orchid, pursuant to the arrangement, was also required to pay interest and costs.

9. When the proceedings came before the Court, the only defendant who appeared before the Court was the third defendant, Mr Bell. Mr Bell has defended the proceedings and filed a cross-claim. The cross-claim seeks to set off damages said to be due from the plaintiff arising from a breach of duties owed by Zhongcheng as mortgagee in possession, unconscionability contrary to s 12CA of the Australian Securities and Investments Commission Act 2001 (Cth) (“the ASIC Act”), and breach of duties under s 85 of the Property Law Act 1974 (Qld) and s 420A of the Corporations Act 2001 (Cth).

10. The plaintiff relies upon affidavits of Zhonglai Zhao affirmed 17 April 2024 and of Berrick Wilson sworn 17 April 2024. The third defendant relies upon his affidavit of 21 June 2024, together with the affidavit of John Byrnes of 25 July 2024.

Chronology

11. To understand better the evidence of the parties and the issues in dispute, it is appropriate to extract the chronology provided by the plaintiff. The chronology is, except to the extent referred to later in these reasons, uncontroversial.

Date	Event	Ref
01.09.2014	Royal National Capital Alliance Limited registered. Robert Taylor and Min Lee appointed directors.	CB Tab 106, 1219-1221.
25.11.2015	Grand Orchid 21 Pty Limited (GO 21) registered and Wayne Roddenby and Robert Taylor appointed as directors.
18.12.2015	GO 21 exchanged a contract to purchase 21 Orchid Avenue, Surfers Paradise (Land) for $8,800,000.	Bell at [24]; CB at 141.
05.02.2016	Gregory Bell appointed as a director of GO 21. Robert Taylor resigned as a director of GO 21.
03.03.2016	Letter of offer from RNCA to GO 21 offering a facility of $39,000,000 (Facility) which included the following terms: • Commencement date 14.03.2016 • Loan Repayment date: 31.03.2019 • The Lender may call in the loan if construction has not be [sic] commenced by 31 October 2016. • Interest rate 15% pa (lower) and 25% pa (higher).	CB Tab 17, 256-257.
11.03.2016	Deed of Loan entered into between GO 21 and RNCA, with a loan repayment date of 31.03.2019 and a construction commencement date of 31.10.2016. The Deed of Loan incorporated Queensland Registered Mortgage Memorandum No. 716132193 (Memorandum).	CB Tab 18, 258-260. CB Tab 21, 266-338.
11.03.2016	Deed of Guarantee entered into between Wayne Roddenby and Gregory Bell (as Guarantors) and RNCA (as Lenders), incorporating the Memorandum.	CB Tab 19, 261-263.
11.03.2016	General Security Deed entered into between RNCA (as chargee) and Wayne Roddenby, Gregory Bell and GO 21 (as chargors).	CB Tab 20, 264-265.
11.03.2016	GO 21 granted RNCA a registered first mortgage over the Land.	CB Tab 22, 339-340.
11.03.2016	Gregory Bell signed a Statutory Declaration that he had received independent legal advice regarding the loan and security documents from Sebastian Roberts, solicitor.	CB Tab 23, 341-342.
1 1.03.2016	Wayne Roddenby made a Statutory Declaration confirming that he had received independent legal advice regarding the loan and security documents from Sebastian Roberts, solicitor.	CB Tab 24, 342-343.
11.03.2016	Wayne Roddenby and Gregory Bell signed a Disbursement Authority and Undertaking to permit Bransgroves Lawyers to disburse monies from the Facility.	CB Tab 25, 343-344.
07.04.2016	GMP Management prepared a cost estimate for the hotel portion of the project on the Land (270 hotel rooms over 23 levels) of $70,000,000 - $80,000,000 (approximately $70,000,000 excluding the purchase price of the Land.	CB Tab 29, 353-391.
27.04.2016-06.03.2018	The RNCA mortgage funding dashboard (Dashboard) records that at total of $15,191,693.43 was drawn down under the Facility.	CB Tab 37, 425.
28.04.2016	Zhonglai Zhao invested $4,300,000 with RNCA for the Orchid Avenue development.	CB Tab 30, 392.
29.04.2016	GO 21 settled the purchase of 21 Orchid Avenue from Starwood Capital Group Pty Limited for $8,000,000. The Dashboard records $8,500,000 drawn down for settlement.	CB Tab 31, 393-394. CB Tab 37, 425.
4.05.2016	Development application for 270 hotel rooms lodged with the Gold Coast City Council.	Bell at [25]; CB at 141.
20.07.2016	JPM Valuers issued a valuation for the Land on the basis that the hotel was "as if complete and as if approved". The valuation was $70,000,000, subject to limitations identified in the report. One high risk factor was the untested forecast trading financials (CB Tab 32, 400).	CB Tab 32, 395-404.
29.08.2016	McAdam Siemon Pty Limited prepared projected profit and loss for the Grand Gold Coast Hotel. The projected net operating profit for the financial year ending 30.06.2019 was $11,770,465.	CB Tab 33, 405-421
02.09.2016	JPM Valuers issued a further valuation of$70,000,000 of the Land based on as if complete and as if approved". JPM Valuers were also requested to prepare a hypothetical valuation based on the Hotel performing as per the financial forecast of McAdam Siemon Pty Limited at $165,000,000. JPM recorded that this value was "speculative and highly dependent on the hotel achieving a net operating profit of $l l,770,465".	CB Tab 34, 422.
11.11.2016	Certifier issued a payment confirmation, which recorded the start date of construction works as 15 December 2016.	CB Tab 35, 423 & Tab 36,424.
27.11.2016	Development approval for 270 hotel room granted.	Bell at [27]; CB at 141.
15.12.2016	Permissible construction start date.	CB Tab 57, 534.
10.01.2017	GO 21 and Ray White Surfers Paradise entered into an Agency Agreement for the sale of the Land.	CB Tab 41, 509-522.
20.01.2017- 16.02.2017	Ray White marketed the Land.	CB Tab 40, 508.
20.01.2017	Due diligence data room for sale of the Land set up.	CB Tab 42, 523-524.
23.02.2017	Email from Mayoor Thakeria (representing a potential purchaser) to Steven King (agent) recording that they only participate in EO is and not tenders or auction. Had there been an EOI, they would have made an offer on the terms set out, subject to due diligence of 6-8 weeks.	CB Tab 42, 523.
04.04.2017	Wayne Roddenby resigned as a director of GO 21.
07.07.2017	Letter from Bransgroves to Ray White recording that construction had not commenced by 31 October 2016 and the Facility was in default. They required all copies of the EOI.	CB Tab 43, 525-526.
12.07.2017	Email from Col Myers of Small Myers Hughes acting on behalf of GO 21 and denying that construction had not commenced prior to 31 October 2016 and which included the following at paragraph 3: "My client intends to call a meeting of shareholders of the company on Friday 21/7/17 with a view to raising additional capital to proceed with the further construction of the building".	CB Tab 44, 527.
31.07.2017	Notice of Default under section 84 of the Property Law Act 1974 (Qld) recording that under clause 233(s) of the Memorandum to the Mortgage, an event of default had occurred if ''work ceases on any Construction for any reason for more than five business days". The Notice gave 30 days to remedy the default.	CB Tab 45, 529-530.
04.08.2017	Copy of the Default Notice served on Small Myers Hughes.	CB Tab 46,531.
18.08.2017	Letter from MacGregor O'Reilly to Bransgroves Lawyers, which stated inter alia: "On about 11 March 2016, the parties entered into a Loan Agreement and associated securities securing the advance of the Principal Sum of$39,000,000 at 15% and 25% per annum irrespective of the amount drawn down. ... On or about 15 December 2016, our client obtained a construction certificate authorising the demolition of the structures on the property".	CB Tab 47, 532-536.
25.09.2017	Gregory Bell resigned as a director and secretary of GO 21.
09.10.2017	Ray White received an [sic] conditional offer to purchase the Land for $15,000,000 million plus GST, upon the payment of a fully refundable deposit of $25,000 and subject to satisfactory completion of due diligence.	CB Tab 48, 537-538.
19.10.2017-24.10.2017	Exchange of emails between Robert Taylor, Gregory Bell, Wayne Roddenby and others concerning the offer of Adara Hotels & Apartments.	CB Tab 49, 539-546.
16.03.2018	Zhongcheng Holdings Pty Limited registered.	CB Tab 105, 1201.
23.05.2018	Deed of Assignment of Deed of Loan, Mortgage, [GSD] and Guarantee between RNCA (as Assignor), Zhongcheng (as Assignee) and the individual investors (named in Schedule 4) (Assignment). The debt was recorded at $14,740,000 (CB at 565).	CB Tab 50, 547-576.
24.05.2018	Registered Transfer Number 718783882 of the Land from RNCA to Zhongcheng.	CB Tab 51, 577-578.
13.06.2018	Notice of the Assignment sent to Wayne Roddenby, Gregory Bell and GO 21.	CB Tab 52,627,635.
22.06.2018	Zhongcheng became [sic] entered into possession of the Land and became a controller of GO 21.
13.07.2018	Notice of exercise of power of sale pursuant to section 84 of the Property Law Act 1974 (Qld) issued by Goodwin & Co (on behalf of Zhongcheng) to GO 21, Wayne Roddenby and Gregory Bell.	CB Tab 54, 646-653.
05.09.2018	Agency Agreement entered into between Zhongcheng and Sotheby's International Realty Projects and Developments for the sale of the Land.	CB Tab 54, 654-665.
19.11.2018	Sothebys conducted an auction at which there were no bids.	CB Tab 88, 979 ([2020] FCA 35 at [16]).
22.11.2018	Hotel Orchid Pty Limited registered. Gregory William Bell and John Joseph Burns [sic] appointed directors.	CB Tab 104, 1192-1194.
21.12.2018	Contract for the sale of the land entered into between Zhongcheng (as vendor) and Hotel Orchid Pty Limited (as purchaser) for $12,250,000.	CB Tab 56, 666-692.
04.02.2019 - 12.02.2019	Emails from Gregory Bell concerning air conditioning units on the neighbouring property and wanting an extension until they can be resolved. Gregory Bell also refers to undertaking due diligence (CB at 702).	CB Tab 57, 693-703.
08.02.2019	McNab (builders) issued an indicative budget for the land at $51,074,397.	CB Tab 58, 704-733.
24.02.2019	Marino Law (for Hotel Orchid) issued a letter to Goodwin & Co (for Zhongcheng) wanting an extension of time for due diligence and finance until 11 April 2019 because of the air conditioning, changes required to the configuration of the building (an issue as to encroachments) and other due diligence matters.	CB Tab 59, 734.
13.03.2019	Email from Vivienne Goodwin to Andrew Taylor of Marino Law agreeing that the due diligence date be extended to Wednesday, 27 March 2019.	CB Tab 60, 735.
18.03.2019	Email from Vivienne Goodwin to Andrew Taylor recording that the air conditioning units had been in place for 10 years and wanting evidence that the purchaser has been using reasonable endeavours to obtain finance.	CB Tab 61, 737.
25.03.2019	Email from Vivienne Goodwin to Andrew Taylor wanting a response.	CB Tab 62, 739.
26.03.2019	Email from Andrew Taylor to Vivienne Goodwin disputing the age of the air conditioning units.	CB Tab 63, 741-742.
31.03.2019	Due date for loan repayment under the Deed of Loan.	CB Tab 18,259.
11.04.2019	Email from Vivienne Goodwin to Andrew Taylor attaching licences for the air conditioning and prior contract.	CB Tab 64, 746-747.
16.04.2019	Victory Investment Development Pty Limited registered.	CB Tab 107, 1261.
23.04.2019	The Contract for Sale between Zhongcheng (as seller) and Hotel Orchid (as purchaser) was terminated by Zhongcheng.	CB Tab 65, 749-750.
05.07.2019 - 09.07.2019	Michael Smith of Goodwin & Co wrote to Wayne Roddenby and Greg Bell recording that they proposed to proceed with an auction of the Land and forwarded on questions from their valuers. Wayne Roddenby declined to assist.	CB Tab 66, 751-752.
17.07.2019	Agency Agreement entered into between Zhongcheng and Sothebys for the sale of the Land.	CB Tab 67, 755-766.
04.09.2019	JLL Valuers prepared a valuation assessing the market value of the Land as $4,500,000 plus GST.	CB Tab 79, 837-899.
11.09.2019	Auction scheduled but as no interest was shown the auction did not proceed and no contracts were requested by any potential bidder.	CB Tab 88, 979 ([2020] FCA 35 at [17]).
14.11.2019	Zhongcheng filed an application under section 424 of the Corporations Act in the Federal Court of Australia seeking a direction that it was not unlawful for Zhongcheng to enter into the Contract for Sale of the land with Victory. Each of the defendants in these proceedings were parties.	CB Tab 82, 904-908.
20.12.2019	Paul Bodd sent an email to Michael Smith at Goodwin & Co offering a purchase price of $7,500,000 with a due diligence period of 120 days.	CB Tab 83,909.
23.12.2019	Berrick Wilson then of KordaMentha issued a report that $5,000,000 plus GST was at or above current market value.	CB Tab 84, 935-963.
17.01.2020	Sothebys received a conditional offer of purchase from Helixian Group Limited for $8,000,000, with a 90 day due diligence period and fully refundable deposit of $50,000 for the due diligence period.	CB Tab 85, 964-966.
05.02.2020	Stewart J in Federal Court of Australia Proceedings NSD1691 of 2019 issued a judgment ([2020] FCA 35). At paragraph [2] his Honour found that each of the defendants had been served. Stewart J made the following direction: "Entry into and completion of the contract for sale of land between the first plaintiff [Zhongcheng] and the second plaintiff [Victory], a copy of which is at tab 1 of exhibit "ZZl" to the affidavit of Zhonglai Zhao affirmed on 2 October 2019, is not unlawful solely by reason of the relationship between the first plaintiff [Zhongcheng] and the second plaintiff [Victory]".	CB Tab 88, 973-981
10.08.2020	Contract for Sale between Zhongcheng (as vendor) and Victory (as purchaser) for $5,000,000.	CB Tab 93, 995-1021.
21.02.2023	Transfer of property from Zhongcheng to Victory.	CB Tab 95, 1023-1090.
21.02.2023	Discharge of mortgage on the Land.	CB Tab 96, 1091.
30.03.2023	Demand letter sent to Wayne Roddenby, Gregory Bell and GO 21 for repayment under the facility.	CB Tab 97, 1092-1151
06.07.2023	Statement of Claim filed.	CB Tab 1, 1-32.
01.08.2023	Notice of Appearance filed on behalf of Wayne Roddenby.	CB Tab 220, 1646-1648.
01.08.2023	Notice of Appearance filed on behalf of Gregory Bell.	CB Tab 221, 1649-1651
29.08.2023	A Notice of Change of Solicitor filed on behalf of Gregory Bell.	CB Tab 222, 1652-1654.
14.03.2024	A Notice of Removal of Solicitor filed on behalf of Gregory Bell.	CB Tab 223, 1655-1656.
31.10.2024	A Notice of Ceasing to Act filed on 31 October 2024.	CB Tab 224, 1657-1659.

Evidence

Zhonglai Zhao

12. Mr Zhao attests to RNCA launching a market campaign to overseas investors, of which he was one, in relation to the real estate development at 21 Orchid Avenue (the Site). The campaign produced an Information Memorandum and Investment Proposal which sought to raise funds from investors.

13. Mr Zhao gives the breakdown of seven individual investors and RNCA, each of whom contributed or committed to contribute to the building of the Orchid 21 Project (hereinafter “the Project”). Mr Zhao invested $4.3 million, three other investors contributed $2 million each, two further investors contributed $1.72 million each, one investor contributed $1 million and RNCA contributed $500,000. The total contributed was $15,240,000. Mr Zhao’s affidavit exhibits a Letter of Offer, the Deed of Loan, the Deed of Guarantee, the General Security Deed and the Mortgage.

14. He also testifies as to the circumstances giving rise to the alleged default which consisted of commencing construction by 31 October 2016. Mr Zhao attests to the serving of the default notice and other formalities.

15. In early 2018, according to the affidavit of Mr Zhao, discussions occurred on the basis that the Project could not proceed, and the investors desired the return of the money they had contributed. On 16 March 2018, the plaintiff was registered with proportionate shareholdings held by each of the individual investors or contributors.

16. On 23 May 2018, RNCA transferred its interest in the Facility and all the security documents to the plaintiff. At the date of assignment, the repayment amount of the facility was $14.74 million. The Deed of Assignment is also exhibited to the affidavit of Mr Zhao.

17. The mortgage was transferred from RNCA to Zhongcheng by registered transfer and on 13 June 2018, the plaintiff notified each of the persons named as defendants in these proceedings of the assignment. By this stage Zhongcheng had been appointed as the controller of Grand Orchid, which occurred on 27 June 2018.

18. On 13 July 2018, Zhongcheng issued a notice of exercise of power of sale to Grand Orchid, purportedly pursuant to s 84 of the Property Law Act 1974 (Qld).

19. On 5 September 2018, Zhongcheng executed a Selling Agency Agreement with OSIR Projects Pty Ltd, trading as Queens Property Sotheby’s International Realty Projects and Development (hereinafter “Sotheby’s”) and on 19 November 2018, an auction was conducted by Sotheby’s at which no bids were forthcoming.

20. After the auction, Hotel Orchid Pty Ltd approached Zhongcheng and expressed an interest in the purchase of the property. The directors and shareholders of Hotel Orchid were the third defendant, Mr Bell, and Mr John Byrnes.

21. On 21 December 2018, a contract was executed, which was the subject of due diligence and finance conditions, which were required to be satisfied by 28 February 2019.

22. On 24 February 2019, Hotel Orchid requested an extension of time for completion of the due diligence until 11 April 2019. On 13 March 2019, an extension was granted to 27 March 2019.

23. On 18 March 2019, as noted in the chronology, there was correspondence on behalf of the vendor seeking assurance and/or proof that Hotel Orchid was a genuine buyer. There was, as also noted, further correspondence relating to the extension of the due diligence date and finally, on 23 April 2019, Zhongcheng gave notice terminating the contract because the conditions precedent to the sale had not been satisfied.

24. There were other proposals for the sale of the property. According to the affidavit, Zhongcheng decided to list the property for another auction and engaged JLL as a valuer in order to form an opinion as to the reserve price. Notice of the proposed sale was given to each of the individual defendants and notice of the valuation being undertaken. No response was received.

25. On 17 July 2019, Sotheby’s was appointed as the agent and there was, over the next two months, significant correspondence attached to the affidavit between Zhongcheng and Sotheby’s relating to the proposed sale. The affidavit also attests to offers received from Helixian at $8 million. Zhongcheng nominated James Zhang to discuss the offer with Sotheby’s.

26. On or about 21 February 2020, Mr Zhang and Sotheby’s, on behalf of Zhongcheng, reached agreement on the terms and conditions of the offer. However, on 19 March 2020, Helixian notified that they did not wish to proceed.

27. Mr Zhao then describes the Federal Court proceedings seeking an order under s 424 of the Corporations Act 2001 (Cth) that completion of the contract for sale between Zhongcheng and Victory was not unlawful solely by reason of their relationship. The proceedings were commenced on 3 October 2019 and relied upon a valuation prepared for the purposes of the Federal Court proceedings by Mr Berrick Wilson, a witness in these proceedings.

28. Even though notified of the Federal Court proceedings, neither Mr Roddenby nor Mr Bell appeared at the hearing. The reasons for judgment granting the orders are attached to the affidavit.

29. On 30 March 2023, Zhongcheng sent a Letter of Demand to each of the individual defendants demanding payment under the guarantee of the outstanding amount. Neither have paid any amount.

30. The affidavit testifies that the amount outstanding at the date of assignment was $14,201,116.43, being the drawdown, and the amount owing under the guarantee is that amount less the $5 million received as a result of the sale to Victory. Interest continues to run at $6,302.13 per day from 1 May 2024 at which time there was, including interest, an amount of $14,552,410.94 owing.

31. In cross-examination Mr Zhao testified that he lives in China and is a director of Zhongcheng. He was unaware as to why Mr Robert Taylor and Ms Sandra Li from RNCA were not present in the proceedings.

32. Mr Zhao had inspected 21 Orchid Avenue three years ago and, at the time of cross-examination, considered it able to be sold in its current state. He testified that he had made efforts to sell the property, but he had not appointed agents to market the property. The steps taken were through friends in Australia and he testified, as was already in evidence, that at some point in the past Sotheby’s advertised the property.

33. The property is currently being leased. Mr Zhao is a director of Victory, the purchaser from Zhongcheng, which currently owns 21 Orchid Avenue. Mr Zhao testified that the two-and-a-half-year settlement period for the purchase by Victory was occasioned because not all of the investors had money available and it took some time to raise the funds and transfer the money to Australia. All of the investors were resident in China.

34. Mr Zhao is unaware of the property market for development sites on the Gold Coast and is unaware that the value of the Site has increased. He wants to sell the property and would undertake a proper campaign to do so. He does not intend to keep it. The seven investors are currently funding the mortgage which is the subject of dispute in the proceedings.

35. Mr Zhao was cross-examined about other investments in real estate and development at Santa Monica on Hope Island, which was also funded by RNCA and in which Mr Zhao was an investor. He was also asked about a project at Southport Hotel, but Mr Zhao denied being an investor in that project.

36. Mr Zhao was unaware of whether the $39 million was available when loan documents were signed and did not have regular meetings with RNCA. Mr Zhao gave $4.5 million to RNCA, which funds he received from a bank in Sydney on loan. Mr Zhao received monthly statements about his investment for the first year only and he did not have an accountant examine the documentation when he took over the mortgage.

37. The development approval originally granted in relation to the Site is still in place. Mr Zhao testified that there was no agreement in place for the settlement funds to be made available two-and-a-half years after the exchange.

38. In questioning, Mr Zhao sought to explain the nine years that it had taken to bring the proceedings. He said that in the first two years, the investors were unaware that they needed to sell the property, and in the third year, they began proceedings. At that time, they had realised that something was wrong and tried to find purchasers. The investors have limited associations in Australia and realise that they ought not do business in Australia.

Berrick Wilson

39. Mr Wilson is a Partner at KordaMentha and swore an affidavit on 17 April 2024 for the purposes of the proceedings. The affidavit attaches the KordaMentha Report (hereinafter “the Report”) and the valuation in relation to the Site. Apart from testifying to the circumstance that no further information had been provided which would allow a review of the valuation and no further investigation had been commissioned or undertaken, the affidavit adds little, if anything, to the Report.

40. The Report expresses the view that for reasons, which the Court will now summarise, the risks of investment in the property were significantly higher than the perceived risks based on the information otherwise available. The factors increasing the risk were:

“a.   The land purchase was to be entirely debt funded;

b.   No equity was being contributed by the developer;

c.   There was a risk that no equity would be contributed in the future;

d.   The developer was a Special Purpose Vehicle (‘SPV’);

e.   The directors of the SPV comprised a Gold Coast based real estate agent and a Newcastle based lawyer, neither of whom apparently had any track record in hotel development;

f.   Two of the directors of RNCA (Sandra Li and Robert Taylor) indirectly held a 40% interest in the Developer and would indirectly benefit from the advance of the Loan;

g.   The development feasibility for the proposed project as a hotel was unsubstantiated, if considered at all;

h.   Interest payments were being funded from investor funds; and

i.   Their investment was highly contingent on the completion of the development project and, should the project not proceed, they would be significantly exposed to a capital loss.” ^[1]

1. Court Book, p 115, KordaMentha Report, subcl 2.3.2.

41. The KordaMentha Report concluded that the $5 million offered by Victory Investment Development Pty Ltd (“Victory”) is at or above current market value. The Report said:

“Having regard to the two valuation reports for the mortgagee, the two public sales campaigns and previous sales campaigns by Ray White Surfers Paradise and Knight Frank, in my opinion, the $5 million being offered by Victory Investment Development Pty Ltd is at or about current market value.” ^[2]

2. Court Book, p 120, KordaMentha Report, subcl 3.3.1.

42. In the course of analysing the circumstances to reach the above conclusion, Mr Wilson referred to the acquisition of the property, the unimproved value for statutory rating purposes, the development approval and other factors. Mr Wilson considered the unavailability of a purported valuation of the Site for $10 million unhelpful or incredible. This valuation was said to have been received in February 2016, only two months later than the Site was purchased for $8 million.

43. Mr Wilson described it as “unusual” that a mortgage security valuation would assess a property at a 25% premium without supporting evidence. The Report notes that the Borrower was unwilling or unable to proceed with development plans and offered the property for sale as early as 2017.

44. The Report also notes that there were conditional indications of interest in purchasing at $14.3 million (excluding GST) and $15 million (excluding GST), but the agents were unable to secure an unconditional offer “capable of acceptance”. After the failure to secure a buyer, the mortgagee took control of the property. The KordaMentha Report is in evidence and Mr Wilson was not the subject of cross-examination.

Gregory Bell

45. The affidavit of the third defendant, Mr Bell, is dated 21 June 2024. Mr Bell was self-represented. I do not make that comment as any form of criticism. Rather, it explains that the form of the affidavit in many respects was problematic.

46. Significant aspects of the affidavit were treated as submissions, and a number of other aspects were the subject of successful objection. Those matters are dealt with in a separate judgment issued during the course of the proceedings, ex tempore.

47. Mr Bell claims that, despite the commitments in the loan documents, RNCA did not have available to it and did not make available to Grand Orchid the $39 million to which it had committed. Mr Bell asserts that, if he were to have known that the $39 million would not be available, he would not have executed the loan documents and would not have provided personal guarantees.

48. The only funds made available were those monies necessary for the purchase of the Site and ancillary expenses. Mr Bell is a real estate agent resident in the Gold Coast. He has, according to his affidavit, “extensive experience in all facets of real estate, particularly in sales and leasing and … [has] worked in the commercial real estate sector for the last 25 years”. He attests to the fact that he is well versed with loan agreements and finance.

49. Mr Bell gives background to his meeting with Robert Taylor and Sandra Taylor who, he says, were in the business of assisting Chinese citizens to invest in Australian real estate through their migration business.

50. Mr Bell gives details of developments at Southport and Hope Island. By April 2016, there were three projects funded by RNCA, being for Hope Island, Southport and the Site.

51. Mr Bell goes through the steps taken to involve RNCA, who were committed to providing $39 million in a total facility, held in trust by the lender for the borrower’s disposal. The acquisition of the Site was for $8.8 million. In the affidavit, Mr Bell details some of the events otherwise set out in the chronology above and in other affidavits to which the Court has referred.

52. Mr Bell refers to a report by JPM, which is annexed to the affidavit, and values the proposed hotel development on the Site at $70 million as a going concern and a realised value of $165 million.

53. Mr Bell also refers to advice he received that, because of changes to the laws governing immigration to Australia and laws restricting funds from China by the People’s Republic of China, insufficient funds were available to complete the amount of the Loan Agreement. Alternative funding arrangements were sought but were unavailable.

54. In late 2016, Mr Bell was instructed by RNCA to sell the Site as DA-approved. The term DA refers to the Development Approval.

55. A real estate agent, Ray White Commercial Gold Coast, was appointed on an exclusive basis to undertake an extensive marketing campaign. Following a number of negotiations, the highest offer was for $15.5 million from Adara Hotels. The second highest offer was for $14.3 million.

56. On 24 October 2017, the highest offer was rejected by Robert Taylor on behalf of RNCA. The evidence is that Mr Taylor, as already noted a director of RNCA, would not seriously consider any offer less than $19 million.

57. In November 2018, the property was marketed as an auction by Queensland Sotheby’s at Main Beach. Mr Bell complains that expressions of interest should have been sought from capable commercial real estate agencies.

58. He complains that the real estate marketing campaign by Sotheby’s was “not up to standard”. The auction, as earlier stated, resulted in the Site being passed-in as there were no bids.

59. Mr Bell refers to the contract of sale executed between Zhongcheng and Hotel Orchid. Mr Bell refers to the sale to Victory at a sale amount of $3.3 million less than the price paid by Grand Orchid.

60. Mr Bell also refers to Zhongcheng having placed the property on the market for sale again. He is advised that the purchase price being sought is over $12 million. The agent, Colliers International, are not conducting an extensive marketing campaign.

61. Mr Bell refers to and annexes correspondence from MacGregor O’Reilly of 18 August 2017 relating to his position. Mr Bell claims loss of potential profits, damages for stress and strain and reimbursement of the costs incurred as a result of the unavailability of the full $39 million.

62. Different valuations are provided for the Site as developed. Mr Bell makes it clear that discussions had occurred with a builder, who was ready to go if funding were available, with experienced architects also available. It was, Mr Bell attests, never the intent of Grand Orchid, its directors, shareholders and the second and third defendant, not to build the hotel. The DA was for a 270-room hotel.

63. Mr Bell initially denies that Knight Frank were ever engaged, either with Ray White Commercial Gold Coast or independently, to sell the Site. As to the campaign, leaving aside the criticisms made by Mr Bell, Mr Bell testifies that there were 83 enquiries, genuine interest on a conditional basis, and an offer of $15.5 million, which was rejected by RNCA.

64. Mr Bell agrees with the comment that there was not an unconditional offer and that Grand Orchid was unable to secure an unconditional offer but asserts that nobody would make an offer unless subject to due diligence. That was the only condition relevantly required in relation to the conditional offer of $15.5 million and the subsequent offer by a different purchaser of $14.74 million. Each of the aforesaid offers were subject to the due diligence, as stated, and a full refund of the deposit if due diligence were unsatisfactory.

65. In oral evidence, Mr Bell explained that it was Mr Taylor who had advised Mr Bell and Mr Roddenby, together with Mr Byrnes, of the changes to Australian immigration law and the restrictions imposed by the People’s Republic of China on the transfer of money. The information in relation to the listing for $12 million came from an employee of Sotheby’s who was a former employee working with Mr Bell.

66. Development Approval had been granted on 27 November 2016, and in December 2016, an Agency Agreement was entered into between Ray White Gold Coast and Grand Orchid. The following month, the Site was marketed for sale and Mr Bell received two conditional offers.

67. Mr Bell was cross-examined on the two conditional offers. In relation to the offer from Adara Hotels in October 2017, it was subject to due diligence over 90 days and, if the due diligence failed, the deposit would be returned.

68. The marketing campaign was conducted by way of tender. Mr Bell had conversations with the author of the email, which he passed on to Mr Taylor on behalf of RNCA for his consideration. Mr Taylor responded with the words: “19 million and we’ll talk”. ^[3]

    3. Tcpt, pp 104-106.

69. The tender process involved the establishment of an online due diligence room, which had been established in a way that potential purchasers could log in and look at documents. When shown an advertisement referring to Knight Frank as agent to sell the property under an expression of interest campaign, Mr Bell indicated that he had been unaware of their appointment but accepted that the article indicated such.

70. In cross-examination, Mr Bell made it clear in relation to receipt of the statement of claim that the address shown on the defence filed on Mr Bell’s behalf had not been his address since 2012 or 2013. Mr Bell had never been asked by his solicitor about his address for service for the purpose of its inclusion in the defence filed in the court.

71. Mr Bell had read the statement of claim, understood that $15 million was claimed against him and understood how the figure had been calculated. He was also aware that from the $15 million, approximately, $5 million which had been received for the sale of the Site was to be deducted.

72. Mr Bell accepted that the settlement date shown on the settlement statement ^[4] was the date on which settlement occurred. The document shows the settlement date as 29 April 2016. None of the three defendants contributed to the $8.8 million required for the purchase of the Site.

    4. Court Book, Vol 1, Tab 31.

45. There was cross-examination on the construction costs which had been variously estimated. An estimate of construction costs by GMP, and accepted by Mr Bell, was for $78 million and Mr Bell was aware that $39 million was not enough to complete the construction. Additional funds would be required.

46. Mr Bell explains that the defendants were awaiting Development Approval before they sought further funds. At the settlement date, the only estimate of costs was that contained in the GMP report.

47. Mr Bell also acknowledged that, as at the settlement date, the defendants knew that there was a commercial risk for Grand Orchid as it depended on obtaining finance above $39 million to meet the construction costs.

48. Mr Bell accepted that the valuations to which he referred in his affidavit of 20 July 2016 and 2 September 2016 were valuations based upon “as if complete and as if approved”. They were not market values of the Site with the DA. Mr Bell also accepted that as at 5 July 2017, no construction or demolition contact had been entered into by the defendants.

49. On 2 August 2017, Mr Bell corresponded with Mr Taylor by email. The email made no reference to a lack of funding for the balance of the facility.

50. The proposition was put to Mr Bell, in cross-examination, that if he were to have had such a conversation with Mr Taylor relating to the lack of funds, he would have included a reference to it in the email. Mr Bell’s response was that Mr Taylor was representing a mortgagee who had served notice on the defendants and said:

“I think that’s a, a pretty good sign that there wasn’t any money [and] the property was on the market because there was a lack of funds. And then you can see very clearly mortgagee in possession coming. So, I knew very well that the conversations that I had with him in December, January, February, when we were going through that marketing campaign, that we had to sell it because we weren’t going to be able to construct because the funds weren’t available.” ^[5]

5. Tcpt, pp 131-132.

79. There was a lack of recollection by Mr Bell of any shareholder meeting or any intention to raise additional funds to complete construction. At one stage, during this period, Mr Bell met with Mr Roddenby and Mr Byrnes during which meeting they discussed how they were going to get out of the situation because they realised that there was going to be a mortgagee in possession sale and they therefore had to refinance. They had understood at the time that the remainder of the $39 million was not available because of the conversation with Mr Taylor in December 2017.

80. Ray White was appointed in December 2016 to sell the property but did not start marketing until January 2017. The defendants had Development Approval but no builder, building contract or a formal quote from a builder.

81. They did not have indicative approval for finance to fund construction above the $39 million. Mr Bell disagreed with the proposition that the reason the property was listed for sale was that Grand Orchid was unable to raise monies over and above $39 million. It was, according to Mr Bell, too early to commence obtaining finance and obtaining building quotes. Such an opportunity never arose because the defendants needed the remaining $24 million from the Facility, and it was never made available.

82. Neither Grand Orchid, nor either one of the other defendants, made any request in writing to drawdown the balance of the facility. Mr Bell explained that this was because they had been told it was not available. ^[6]

    6. Tcpt, p 138, lnn 27-38.

83. The contract with Hotel Orchid of 21 December 2018 was terminated and was not then and never has been the subject of legal proceedings.

84. On 5 July 2019, Mr Bell received correspondence and understood that Zhongcheng intended to auction the property as a mortgagee sale and needed a current valuation. Mr Bell understood that the current valuation was needed to set a reserve price. He also understood from the correspondence that Zhongcheng was asking Mr Bell for information, either from him or Mr Roddenby, to assist to obtain an appropriate valuation.

85. Mr Bell accepted that there was a follow up email to which he did not reply. Mr Bell explained that he did not reply because it was very easy for Zhongcheng to obtain the material they required themselves by going to the Council and architects. ^[7]

    7. Tcpt, pp 139-140.

86. Mr Bell was unaware that the Site was sought to be auctioned again in 2019.

87. In cross-examination about the finance over and above $39 million, Mr Bell explained that, from his understanding and viewpoint, finance for a third party could not have been raised until after the $39 million was in place and after there was a contract from a builder. However, no builder would enter into a contract when the funding of the $39 million was not in place.

88. Neither Mr Bell nor Mr Roddenby was prepared to use his personal assets to raise finance, ^[8] and there were no other real estate assets available to the defendants that could be used as security for a loan of a further $30 million. Mr Bell accepted that they could have entered into a joint venture with a financier. ^[9]

    8. Tcpt, p 145.

    9. Tcpt, pp 145-146.

John Byrnes

89. John Byrnes executed an affidavit on 25 July 2024. In evidence adduced on the voir dire and admitted into evidence in the substantive proceedings, Mr Byrnes confirmed that he had been employed by Robert Taylor on behalf of RNCA. Mr Taylor was a director of RNCA and informed Mr Byrnes that he had $39 million in cash and planned to buy a property and build a hotel. Mr Byrnes had experience project managing three other hotels and told Mr Taylor that the amount was not enough.

90. The affidavit refers to the fact that Mr Byrnes was introduced to Mr Taylor in 2015 and refers to the other development opportunities in Hope Island and Southport.

91. Some months later, there was a discussion relating to the Site. Mr Taylor had encouraged Mr Byrnes to seek further development opportunities and consequently, the Site became available and was purchased after due diligence for $8.8 million. A loan agreement was prepared between RNCA and Grand Orchid. The loan agreement was for the purpose of developing a 276-room hotel and on-selling it. The purchase occurred in April 2016, when it was completed.

92. In December 2017, Mr Taylor informed Mr Byrnes that there were insufficient funds available to continue with the development at Hope Island and that to continue would require additional funding. A similar conversation occurred in relation to the Site.

93. While the loan agreement with RNCA referred to a facility of $39 million, only $12 million (approximately) was provided and that was for the settlement of the purchase, obtaining the Development Approval, and costs associated with and ancillary to those factors as well as the commencement of the demolition.

94. After the conversation relating to the lack of funds, a decision was made to on-sell the Site and Ray White Commercial Gold Coast was employed to market it. Mr Byrnes was informed of enquiries and an offer of $15 million on certain conditions which was rejected by Mr Taylor. The mortgagee came into possession and Mr Byrnes understood that the Site was sold.

95. Apart from the voir dire, which occurred at the outset of the evidence, Mr Byrnes was cross-examined on his affidavit. The conversation with Mr Taylor was clarified in cross-examination as having occurred in 2017 approximately two weeks before they were going to a building contract. The Court understands that comment as not referring to the execution of a contract but to the steps necessary before such a contract could be entered. On other evidence, the Court understands that, as at December 2017, no firm contract price had been received from a builder.

96. Mr Byrnes and Mr Taylor had been regularly communicating with China about the money and Mr Taylor went back to China and informed Mr Byrnes that “it just went dead”. ^[10]

    10. Tcpt, pp 53-54.

97. Mr Byrnes made clear that he was aware that RNCA issued an investment proposal to investors and he had read and understood the proposal. Mr Byrnes was aware that construction costs would have been in excess of $65 million.

98. GMP prepared a report to the effect that it was a construction cost of approximately $78 million, but modifications were made which brought it under $60 million to approximately $55-58 million. Mr Byrnes was aware that the $39 million facility was supposed to be available “right from the day dot” and that Grand Orchid was required to borrow the balance of the construction funding. ^[11] It was, on Mr Byrnes’ understanding, never RNCA’s responsibility to obtain funding for Grand Orchid above the $39 million. ^[12]

    11. Tcpt, p 58.

    12. Tcpt, p 59.

99. Mr Taylor informed Mr Byrnes that he had an investor in Forster, and he could raise the money above $39 million and could organise a second mortgage with Macquarie Bank. ^[13] Nevertheless, it was not RNCA’s responsibility to obtain the funding for Grand Orchid above the $39 million facility.

    13. Tcpt, p 59, lnn 31-36.

100. After paring down the standard of the hotel to be built, there was an indicative budget of $51 million, excluding GST. ^[14] The new estimate had been obtained when Mr Byrnes was a director of Hotel Orchid.

     14. Tcpt, p 65.

101. Hotel Orchid had been registered on 22 November 2018 with Mr Byrnes and Mr Bell as directors and they discussed the possibility of purchasing the Site. One month later, a contract was entered into between Zhongcheng and Hotel Orchid for $20.25 million. The project was modified and pared down to a 4-Star hotel for the purpose of Hotel Orchid potentially purchasing the Site. ^[15]

     15. Tcpt, p 66.

102. The estimate of $51 million was not in existence in March or April 2016, when the Site was initially purchased by Grand Orchid. At no time did Grand Orchid have a signed construction contract for the proposed hotel. There were, however, estimates from quantity surveyors and from McNab. ^[16]

     16. Tcpt, p 68, lnn 1-14.

103. Mr Byrnes denied that a decision had been made by the second and third defendants, as soon as the Development Approval was obtained, to sell the property as a result of the fact that no finance could be raised to complete construction. Mr Byrnes suggested that the completion of the construction was relatively easy for the defendants who needed only 50% of the new estimate of construction costs. ^[17]

     17. Tcpt, p 70, lnn 4-12.

104. The Court understands the approximation of 50% arises from the estimate of $51 million and the availability of a further $24 million from the $39 million facility.

105. Mr Byrnes gave evidence that it was not difficult to obtain finance for construction of a commercial building before you have a signed estimate from a builder as to costs. In part, this was due to the available possibility of a “turnkey contract”, which, the Court understands, is a contract where the contractor designs, builds and delivers the end product and the client occupies at the conclusion by "turning a key". Such a contract transfers the risks of construction to the builder and generally results in a higher construction cost.

106. Mr Byrnes accepted that there had not been any request for a drawdown of the $24 million or any further monies over and above the $15 million already provided prior to December 2017. Further, there was no written communication from Grand Orchid to RNCA stating an intention to perform the construction and draw down the funds.

107. Mr Byrnes, nevertheless, explained that Mr Taylor was in his office every day and implied that there was no need for written communication. Mr Byrnes could not recall whether there was a conversation with Mr Taylor prior to December 2017 concerning the unavailability of further construction funding for the Site.

Principles

108. The claim before the Court and, to a slightly lesser extent, the cross-claim, depend upon the law of guarantee and the law of contract. There are a number of issues identified by the parties, although some of them, if agitated, were not agitated in a manner that renders it necessary to deal with them.

109. Nevertheless, it is important to refer to certain fundamental aspects in order to explain the approach of the Court. Because the third defendant is self-represented and the other defendants have not appeared, it is even more important to ensure that the principles that underpin the Court’s approach are explained.

110. Essentially, the Court is required to deal with what is alleged to be a breach of contract. The alleged breach occurs at two levels. First, there is default by the borrower and secondly, there is an attempt to enforce the guarantee.

111. Enforcement of guarantees, historically, sounded in damages, not debt, even where it was a debt that was guaranteed. The law of guarantee is part of the law of contract, as explained by the House of Lords. ^[18]

     18. Moschi v Lep Air Services; Lep Air Services v Rolloswin [1973] AC 331.

112. As Lord Diplock succinctly stated:

“The law of guarantee is part of the law of contract. The law of contract is part of the law of obligations. The English law of obligations is about their sources and the remedies which the Court can grant to the obligee for a failure by the obligor to perform his obligation voluntarily. Obligations which are performed voluntarily require no intervention by a court of law. They do not give rise to any cause of action.

English law is thus concerned with contracts as a source of obligations. The basic principle which the law of contract seeks to enforce is that a person who makes a promise to another ought to keep his promise. This basic principle is subject to an historical exception that English law does not give the promisee a remedy for the failure by a promisor to perform his promise unless either the promise was made in a particular form, e.g., under seal, or the promisee in return promises to do something for the promisor which he would not otherwise be obliged to do, i.e., gives consideration for the promise. The contract which gives rise to the instant appeal does not fall within this exception. In return for the guarantor’s promise to the creditor the latter promised to extend credit to the debtor and to release his lien upon the debtor’s goods.

Each promise that a promisor makes to a promise by entering into a contract with him creates an obligation to perform it owed by the promisor as obligor to the promisee as obligee. If he does not do so voluntarily there are two kinds of remedy which the court can grant to the promisee. It can compel the obligor to pay to the obligee a sum of money to compensate him for the loss that he has sustained as a result of the obligee’s failure to perform his obligations. This is the remedy at common law in damages for breach of contract. But there are some kinds of obligation which the court is able to compel the obligor actually to perform. In some cases, such as obligations to transfer title or possession of property to the obligee or to refrain from doing something to the detriment of the obligee, a remedy to compel performance by a decree of specific performance or by injunction is also available. It was formerly obtainable only in a court of equity. In these cases it was an alternative remedy to that of damages for breach of contract obtainable only in a court of common law. But, since a court of common law could make and enforce orders for payment of a sum of money, where the obligation was itself an obligation to pay a sum of money, even a court of common law could compel the obligor to perform it. Historically this was the only remedy which the court would grant at common law when an obligor failed to perform this kind of obligation. The remedy of damages for non-performance of the obligation was not available as an alternative.” ^[19]

19. Ibid at 346-347 (Lord Diplock).

113. In Moschi, extracted above, Lord Diplock went on to discuss the nature of the obligations of a guarantor not only to pay on default of the debtor, but “to see to it that the debtor performed his own obligations”. ^[20] His Lordship explains the rule as the basis for the right of a guarantor, in equity, to compel the debtor’s performance of obligations; the inability of a creditor to sue on the guarantee where there has been a contractual promise to allow the debtor an extended time to pay (at least until the expiry of that extended time); and most importantly for an understanding of his Lordship’s judgment, that a voluntary forbearance (i.e. not a contractual promise) by the creditor of the debtor’s obligation to pay, does not affect the guarantor’s right to compel the debtor and therefore, does not affect the liability of the guarantor to his creditor. ^[21]

     20. Ibid at 348.4.

     21. Ibid at 348; see by analogy in comparison Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570; [2008] HCA 57.

114. In dealing with the interpretation of a contract, the Courts take an objective view of the rights and liabilities of the parties. The subjective beliefs or understandings of any particular party are irrelevant, although some exceptions occur in relation to the formation of the contract as distinct from its interpretation once made.

115. This has been confirmed on a number of occasions, one of the classic statements of which was of the High Court in Toll v Alphapharm, in which the High Court said:

“This Court, in Pacific Carriers Ltd v BNP Paribas, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.” [Footnotes omitted.] ^[22]

22. Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52 at [40] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ).

116. As earlier stated, and as is obvious from the above extract, the construction of a contract is performed by looking at the contract as a whole and interpreting the contract on the basis of the words used by the parties, the purpose of the parties and the context in which the contract had been made. The function of construing a document is to determine the intention of the parties as objectively disclosed by the words of the contract and the context in which it is made. Some subjective circumstances are allowed, for example, when a word has a special meaning known to each of the parties to the contract, being a meaning that is not its ordinary or grammatical meaning.

117. One of the issues raised by the parties is whether the Loan Agreement is a binding contract, in part, based upon the circumstance that the contract in evidence is signed only by the defendants and not by RNCA. Hence, the Court has referred to the qualification on subjective intention being irrelevant when one is examining whether a contract has been formed and the intention of the parties to affect legal relations.

118. One of the other issues raised is an allegation that RNCA did not have available $24 million of the $39 million it was obliged to provide under the terms of the Loan Agreement. This raises the issue of the remedies available to the innocent party to a contract when the other party to the contract has breached it. This is one of the reasons for the extended extract of the judgment of Lord Diplock in Moschi above.

116. The issue was more completely dealt with by the High Court in Koompahtoo. ^[23] The remedies that are available to an innocent party depend on whether the breach by the other party is an essential or non-essential promise, which in turn, depends upon the parties’ intention appearing from the terms of the contract and its context.

     23. Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited (2007) 233 CLR 115; [2007] HCA 61.

117. The High Court in Koompahtoo, supra, referred with approval to the classic statement by Jordan CJ in Tramways. ^[24] Jordan CJ clarified that the innocent party, if the breach is a condition or essential term, may, when he becomes aware of the breach, determine the contract and recover damages for loss of the benefit of the contract or keep the contract on foot and recover damages for the particular breach. ^[25]

     24. Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632.

     25. Ibid at 641.

118. The test for essentiality is whether it appears from the general nature of the contract, considered as a whole, or it is expressed in the contract itself, that the promise is of such importance to the promisee that the promisee would not have entered into the contract unless he had been assured of a strict or substantial performance of the promise and that such an attitude ought to have been apparent to the person making the promise. ^[26]

     26. Ibid at 641-642, cited with approval in Koompahtoo, supra, at CLR 137 [47].

119. The High Court, after discussing an agreed upon essential term, discussed the circumstance where, in the absence of an agreed upon entitlement to terminate, there is, by one party, a sufficiently serious breach of a term of the contract, which is not described as essential, being a breach that goes “to the root of the contract” to which a relevant consideration may well be the adequacy of damages as a remedy. ^[27]

     27. Koompahtoo, supra, at [54] (Gleeson CJ, Gummow, Heydon and Crennan JJ).

120. There may be a nuanced difference between the description proffered by the High Court above and the description by Diplock LJ (as his Lordship then was) on which the High Court relied. In my respectful submission, if there be a nuanced difference, it is not intended nor does it produce a different result.

121. It seems that the High Court in Koompahtoo, supra, looks to the breach and poses possibly a less stringent requirement on the necessary effect, while Diplock LJ makes clear that it is the event, not the breach, that gives the right to discharge. In any event, the discharge of a contract by an innocent party is occasioned, relevantly, by the election of the promisee on the occurrence of a default of the requisite kind.

122. If that election were to occur, then one goes to first principles which were classically described by the High Court in McDonald v Dennys Lascelles. ^[28] Part of the classic passage states:

“When a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract as no longer binding upon him, the contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired. Rights and obligations which arise from the partial execution of the contract and causes of action which have accrued from its breach alike continue unaffected. When a contract is rescinded because of matters which affect its formation, as in the case of fraud, the parties are to be rehabilitated and restored, so far as may be, to the position they occupied before the contract was made. But when a contract, which is not void or voidable at law, or liable to be set aside in equity, is dissolved at the election of one party because the other has not observed an essential condition or has committed a breach going to its root, the contract is determined so far as it is executory only and the party in default is liable for damages for its breach.” ^[29]

28. McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457; [1933] HCA 25.

29. Ibid at 476-477 CLR (Dixon J, as his Honour then was).

126. In other words, if there is a breach of an essential condition or a sufficiently serious breach of a contractual term going to the root of the contract allowing the innocent party to rescind the contract, the innocent party may still sue for damages, but further performance of the contract cannot be enforced.

127. The foregoing is relevant because, under the cross-claim, it is said that the non-provision or the non-availability of the remaining $24 million of the facility was a breach of the contract. One would consider that the non-provision of over 60% of the intended facility would have been an essential condition breached or, at least, a sufficiently serious breach of a non-essential condition that would warrant termination, if the contract required its provision.

128. I have, in the foregoing approach, and in the remainder of these reasons, referred to rescission and termination. Rescission can, of course, be ab initio or at the election of a party. It is replete with ambiguity. ^[30] These reasons do not concern rescission ab initio.

     30. Commissioner of Taxation v Reliance Carpet Co Pty Limited (2008) 236 CLR 342 at 346; [2008] HCA 22 at [2] (Gleeson CJ, Gummow, Heydon and Kiefel JJ); Photo Production v Securicor Ltd [1980] AC 827 at 844 (Lord Wilberforce).

129. The foregoing principles must be applied in determining the issues which these proceedings have raised and are applied by the Court in determining those issues.

Consideration

130. Many of the issues raised in the statement of issues supplied by the plaintiff are issues that were not agitated or not seriously agitated on behalf of the defendant. As earlier stated, only the third defendant appeared. Nevertheless, I accept that the outcome of these proceedings impacts each of the defendants. The plaintiff, most appropriately and properly, did not seek default judgment against those defendants who did not appear.

131. While the plaintiff sets out the relevant clauses of the documents upon which it relies, in most instances those clauses reflect common understanding and to the extent necessary, the effect of the clauses can be detailed in the discussion of the considerations on each of the points raised.

132. The first issue agitated by the defendants relevant to the validity of the contracts is that, in relation to the Deed of Loan, the Deed of Guarantee and the GSD, that which has been produced in evidence and to which earlier reference has been made, is signed by the defendants but not by RNCA. While, for a self-represented party, such a circumstance may seem fatal or incongruous, it does not determine whether or not there is a binding deed, contract or document.

133. A signature is evidence of an intention by the party that has signed it to effect legal relations, which is a necessary element of the formation of a contract. However, the failure to sign a document does not establish the opposite.

134. The question that must be asked and answered relates to whether the party in question, in this case RNCA, considered itself bound by the contract and the other parties also consider it bound by the parties. This is a determination of an objectively manifested intention to be legally bound by the contract in question. ^[31]

     31. Clark Equipment Credit of Australia Ltd v Kiyose Holdings Pty Ltd (1989) 21 NSWLR 160 at 169-174; Alonso v SRS Investments (WA) Pty Ltd [2012] WASC 168 at [49]-[52].

135. In this context there has been part performance of the contract in question. RNCA allowed the drawdown of approximately $15 million as part of the agreement to make available $39 million as a loan facility. It would be inconsistent with common sense in that circumstance not to draw the inference that each of RNCA and the defendants considered RNCA bound by the documents in question.

136. Further, once the defendants had signed and delivered the deeds and documents, those deeds and documents become binding on the person who has executed it. In Pratap, ^[32] the Court dealt with this exact issue by reliance on precedent. The terms of the judgment, relying as it does on Naas v Westminster Bank ^[33] and Katsaitis ^[34] stated:

“… once a person has signed, sealed and unconditionally delivered a deed that deed is binding on that person even if there is a party to the deed who has not executed it or delivered it unless the failure of that third party will throw an additional burden on the other parties. There is no additional burden in the instant case. Accordingly the Deed is effective.” ^[35]

32. Pratap v Permanent Custodians Ltd [2013] NSWSC 1918.

33. Naas (Lady) v Westminster Bank Ltd [1940] AC 366.

34. Katsaitis v Commonwealth Bank of Australia (1987) 5 BPR 12,049.

35. Pratap v Permanent Custodians Ltd, supra, at [8] (Young AJ, as his Honour then was).

137. Leaving aside an express provision requiring signatures, the defendants are bound by the Deeds. The Deed of Loan, the Deed of Guarantee and the GSD are valid and enforceable.

138. The next question posed in the statement of issues is whether the assignment to the plaintiff was valid and enforceable. Clauses 135-137 of the Memorandum expressly permitted RNCA to assign its right under the Facility Documents. ^[36]

     36. Court Book, p 279.

139. The evidence before the Court establishes that RNCA gave notice of the assignment to Grand Orchid on 23 May 2018 as part of the letter from Goodwin and Co dated 13 June 2018. Separate letters were sent to the second and third defendants by letter separately addressed on 13 June 2016. The issue of notice is admitted in the defence.

140. As conceded in the course of oral submissions, it seems there is no real issue with the assignment. Whether or not the issue is pressed, the Court finds that the assignment was valid and enforceable and enabled the plaintiff to enforce the rights under the original documents.

141. The next issue is the drawdown. There is a business record of RNCA which records that the amount owing was $15,191,693.43. ^[37] This a business record and was produced under subpoena. The plaintiff relies upon the admission of Mr Roddenby in his affidavit, but the affidavit was not read and is not before the Court.

     37. Court Book, p 425.

142. The assignment recorded the debt as $14,740,000. ^[38] This was the principal owing as the date of the assignment. The assignment occurred on 23 May 2018 and is recorded in a Deed which is in evidence before the Court. ^[39]

     38. Court Book, p 565.

     39. Court Book, pp 547-576.

143. The issue then becomes whether Grand Orchid was in breach of the Deed of Loan and/or the Mortgage and entitled the plaintiff to rely upon the Guarantee. The Memorandum, which is expressly included by reference in each of the Facility Documents states at Clause 219 that Grand Orchid was to pay the monies owing, a defined term under the Memorandum, to the lender, which in accordance with the assignment, became the plaintiff.

144. Zhongcheng made the demand by letter dated 30 March 2023. ^[40] No payment has been made in relation to that demand. In accordance with the Memorandum there has been a breach.

     40. Court Book, pp 1098-1101.

145. The amount owing, in accordance with that breach and demand is the principal of $14,740,000 which was owing as at 23 May 2018. Against the principal owing at the time of assignment is the amount of $5 million which was received as a consequence of the sale to Victory.

146. As a consequence of the foregoing, the amount owing is $9,740,000, subject to any reduction as a consequence of the outcome of the cross-claim. Interest is payable, which can be calculated only after the Court delivers judgment because the parties are unaware of the Court’s attitude to the cross-claim.

147. Over and above the foregoing, the plaintiff is entitled under the contractual documents to indemnity costs for the enforcement of its rights under the Memorandum. ^[41] The usual rule that costs will be assessed on the ordinary basis may be displaced by contractual agreement. ^[42]

     41. Clause 394(t).

     42. AGC (Advances) Ltd v West (1984) 5 NSWLR 301; Rail Corp (NSW) v Leduva Pty Ltd [2007] NSWSC 800 at [18].

148. In Abigroup Ltd v Sandtara Pty Limited, the Court of Appeal (Stein JA, Giles JA agreeing) stated:

“It is, of course, correct that a court is not bound to give effect to any extra curial contract as to costs when exercising its discretion to award costs. It does not follow, however, that the discretion takes over from the contract and the exercise of discretion against giving effect to the contract precludes enforcement of the contract as to costs. As Salter J said in Mansfield v Robinson [1928] 2 KB 353 at 359, agreements as to costs are common practice and perfectly valid and enforceable. Gomba did not overrule Mansfield, as seems to have been suggested by the appellant. Although Scott LJ noted that some of the dicta in Mansfield was not easily reconcilable, the judgment of the court is consistent with Mansfield, see for example at 194 – 195. For other relevant examples see In Re Shanahan (1941) 58 WN (NSW) 132 at 134; Maher v Network Finance Ltd (1986) 4 NSWLR 694; and Elders Trustee & Executor Co Ltd v Eagle Star Nominees Ltd (1986) 4 BPR 9205. The contractual right simply stands independently of the curial power and order.” ^[43]

43. Abigroup Ltd v Sandtara Pty Limited [2002] NSWCA 45 at [9].

149. There is a contractual right to indemnity costs and, subject to that which may be decided in the cross-claim, no good reason why that contractual right ought not to be enforced. Indemnity costs will be ordered.

150. It is a matter within the discretion of the Court as to whether or not indemnity costs should be ordered, but where there is a contractual right, and the contractual right is enforceable, in my opinion, there needs to be good reason not to order indemnity costs in accordance with that contractual right.

151. The next issue required to be decided, according to the statement of issues before Court, is whether the third defendant (and the other defendants) are liable under the Deed of Guarantee. Frankly, I do not see this as a particularly significant issue.

152. Having made the earlier determinations in relation to the validity of the Facility Documents and the validity of the Guarantee and its assignment, it is unclear as to the basis upon which it is said that the Guarantee is other than enforceable. The foregoing statement does not take into account the circumstances of the cross-claim.

153. Such a comment relates to both the second and third defendant and I determine in relation to those issues raised that each of the second and third defendant are liable as guarantors pursuant to that Memorandum, subject to that which may flow from the determination of the cross-claim.

154. In many respects the liability of the second and third defendants under the Guarantee and the liability of Grand Orchid under the Facility Documents is a relatively simple and straightforward contractual issue. The contractual documents set out the obligations of the parties and those obligations include the payment on demand of monies owing. There has been a demand, and the monies have not been paid. The guarantors guaranteed the payments and performance of the contractual obligations both as a guarantee and as the contract on primary obligations.

155. The cross-claim is in different context. The defendants, in which term I include both the second and third defendants, claim different remedies.

156. First, it is claimed that the plaintiff has breached s 420A of the Corporations Act 2001 (Cth). Section 420A imposes duties on the plaintiff, Zhongcheng, in respect to its power of sale under the relevant documents. The terms of s 420A(1) of the Corporations Act are:

420A Controller’s duty of care in exercising power of sale

(1)   In exercising a power of sale in respect of property of a corporation, a controller must take all reasonable care to sell the property for:

(a)   if, when it is sold, it has a market value—not less than that market value; or

(b)   otherwise—the best price that is reasonably obtainable, having regard to the circumstances existing when the property is sold.

157. The term controller, where used in the foregoing section, is defined by s 9 of the Corporations Act. It is unnecessary to extract that definition. It is clear that Zhongcheng is a controller for the purposes of the provisions of s 420A.

158. Over and above the provisions of s 420A of the Corporations Act, the provisions of s 85(1) of the Property Law Act 1974 (Qld) are relevant. The terms of s 85(1) of the Property Law Act are:

“It is the duty of a mortgagee, including as attorney for the mortgagor, or a receiver acting under a power delegated to the receiver by a mortgagee, in the exercise of a power of sale conferred by the instrument of mortgage or by this or any other Act, to take reasonable care to ensure that the property is sold at the market value.”

159. In Artistic Builders Pty Ltd J Campbell J (as his Honour then was) held:

“In deciding whether there has been a breach of section 420A, a court looks at the process that a controller of property of a corporation has gone through in selling that property. The enquiry is whether, in the course of that process, the controller has taken all reasonable care to sell the property for not less than its market value. It is not necessary to prove that the property was in fact sold for less than its market value – a controller could breach section 420A, but, through luck, still manage to sell the property for its market value or more. Further, it is not necessary for me to find what actually was the market value of the property, to be able to find that section 420A(1)(a) was breached – all that I need find is that the process gone through was not one where all reasonable care was taken to sell the property for its market value, whatever that market value might be.” ^[44]

44. Artistic Builders Pty Ltd v Elliot and Tuthill (Mortgages) Pty Ltd [2002] NSWSC 16 at [126].

160. The foregoing extract deals, in my view, with the duties under s 420A of the Corporations Act and also the duties imposed by s 85 of the Property Law Act. Section 85 of the Property Law Act, which requires the mortgagee to take reasonable care to ensure that the property is sold at market value, looks at that which is done by the mortgagee. ^[45]

     45. Investec Bank (Australia) Limited v Glodale Pty Ltd [2009] VSCA 97 at [43].

161. Campbell J in Artistic Builders deals with that process. As his Honour sets out, the Court enquires as to whether “the controller has taken all reasonable care to sell the property for not less than its market value”.

162. The Court has great sympathy in the circumstances before the Court with the frustration and sense of unfairness suggested by the third defendant, particularly given that there were two offers for sale, albeit with conditions relating to due diligence, each of which was rejected purportedly because of the delay that would be occasioned by the due diligence situation. The expressed attitude to the delay may well have impacted upon the second and third defendants’ liability. Such time required for the due diligence may not have occasioned any real or effective delay, given the delay in the settlement of the sale to Victory.

163. Notwithstanding that sympathy, the issue raised by the rejection of those offers is not the issue with which the Court is required to deal. The defendants have provided to the Court no evidence of a market value for the Site at the time of the sale to Victory.

164. The Court, on the other hand, has been provided with expert evidence of the market value of the Site commissioned by the plaintiff at the time of the sale. There is no basis which would require the Court to depart from the expert evidence provided. The expert evidence was not the subject of cross-examination.

165. The relationship between Victory and Zhongcheng is a matter that, ordinarily, would create suspicion. However, that relationship, of itself, cannot undermine the sale. Orders of the Federal Court have permitted the sale to Victory on the basis of the market value. On the evidence before the Court in these proceedings, it was sold at market value.

160. The Court is not required to determine whether the best price was obtained. The Court is required to determine whether all reasonable steps were taken to achieve market value. In this case, market value was achieved and Zhongcheng took reasonable steps to achieve it.

161. Zhongcheng valued the Site by the use of an independent expert valuer and sold the Site at the value that was determined to be the market value. In those circumstances, it cannot be said that Zhongcheng did not take all reasonable steps to sell at market value.

162. There has been, in those circumstances, no breach of the duty imposed by s 420A(1) of the Corporations Act. Nor has there been a breach of the duty imposed by s 85(1) of the Property Law Act. Thus, there has been no breach and no loss is required to be ascertained. The other two aspects of the cross-claim relate to misleading and deceptive conduct, on the one hand, and unconscionability, on the other.

163. Before dealing with those two aspects, it is necessary to deal with the allegation that the $24 million was not available. Accepting without at this stage deciding that the $24 million was not available, an issue arises as to that which flows from such non-availability.

164. The Facility Documents were entered into on 11 March 2016, as is made clear from the foregoing chronology. The conversation with Robert Taylor, a director of RNCA, occurred on the evidence of Mr Byrnes, which on this issue I accept, in or about December 2017. If the $24 million remaining were not available in December 2017, it does not prove that the $24 million was not available in March 2016.

165. If the non-availability of the further $24 million in the Facility was a breach of the contractual arrangements, the defendants would have had two options. The defendants could have elected, because of its fundamental nature, to terminate the contract and sue for damages or to continue the contract in existence and sue for damages for the breach. In either case, the situation would be no different to now.

166. The repayment of the monies drawn down would still be necessary. The repayments were accrued rights under the contractual documents. ^[46] The fundamental issue is whether there has there been a breach by RNCA which infects the rights of Zhongcheng and what are the damages that are payable.

     46. McDonald v Lascelles, supra.

167. As is clear from the summary of evidence already provided, the defendants accept that significant additional funds were necessary in order to complete the construction of the Project in whatever form was ultimately determined. No steps were taken to obtain such additional or replacement funds.

168. This is not an issue of mitigation. It is an issue relating to how one would determine, if there were a breach by RNCA, the losses suffered by the second and third defendants. At the time that it was said there was a non-availability of funds, there was no building contract in existence and there was no availability of the funds necessary to undertake the construction project.

169. This discloses the irrational aspects of the defendants’ position and/or complaint. Mr Bell complains that the additional finance and/or replacement finance could not have practically been obtained before there was a building contract and there could not be a building contract before the $24 million additional drawdown was available.

170. However, the additional $24 million was not to be available except for the meeting of Progress Payments and Progress Payments would not be payable until appropriate stages of the construction project had been completed, which, in turn, could not occur until there was a building contract that had been executed and construction had commenced. Consequently, fulfilment of the arrangement between the plaintiff and defendants depended on the existence and commencement of the building contract and therefore the availability of the additional funds the obtaining of which were the responsibility of the defendants.

171. I do not consider that RNCA was in breach of the Facility Documents. The statement by Robert Taylor, a director of RNCA, assuming it was made with the authority of RNCA, was an admission of the current state of finances. Given that the state of finances seems to have been caused by an alteration in policy by the Australian Government and the legislation accompanying it and policy of the People’s Republic of China and the legislation implementing it, there may well have been a frustration of the contract. It is unnecessary to determine that issue.

172. Of importance is that the defendants did not seek from RNCA to draw down the remainder of the Facility. The defendants relied upon the informal expression of opinion by a director who was not directly connected with the investors that made up RNCA.

173. If there had been a request to draw down the $24 million, assuming a request for that amount was available under the loan documents at the time the request was made, and the request was not fulfilled, then there may have been a breach. But no such request was made.

174. Further, there were conditions that were applicable that were required to be satisfied before any request for a further draw down could be made. Those conditions had not been satisfied.

175. I do not consider that RNCA was in breach of the Facility by reason of the advice provided that the funds were “unavailable”, assuming such an advice was an admission by RNCA made by one of its directors.

176. Clause 188 of the Memorandum is in the following terms:

“188   The Lender is not obliged to make a Progress Payment if the Lender does not have funds then reasonably available to make the Progress Payment, and in such circumstances at the absolute discretion of the Lender the Lender may reduce and/or postpone the Progress Payment or simply decline to make the Progress Payment. The Debtor shall not be able to bring an action on grounds of breach of contract, promissory estoppel, or on other equitable, common law or statutory ground in order to claim damages (whether common law, equitable, statutory) or seek compensation in any other way for lost profits, subsequent failure of the project or other financial losses in the event the Lender exercises its right under this clause. This clause shall apply notwithstanding any representations or intimations made at any time by the Lender, its officers or agents that further Progress Payments would be made.”

183. Each of the second and third defendants executed statutory declarations at the time of entering into the Facility Document that they received independent legal advice and were aware of the terms of clause 188. Further, the draw down of any further amount, beyond purchase of the Site and ancillary costs including the development application, was intended to fund construction. Construction had not commenced.

184. As a consequence, the defendants were not in a position to seek to draw down the remainder of that which was said to be available under the Facility until construction had commenced. Progress payments were necessary and the remainder of the draw down could not have been demanded. If and when such a situation were to arise, it is at that point that the availability or otherwise of the remaining $24 million would have been critical.

185. It is necessary to deal with the principles associated with misleading or deceptive conduct on the one hand, and unconscionability, on the other hand. In ASIC v Kobelt ^[47] the High Court said:

“ASIC refers to Australian Competition and Consumer Commission v Lux Distributors Pty Ltd as illustrative of the correct approach. The Full Court of the Federal Court of Australia found that Lux Distributors Pty Ltd (‘Lux’) engaged in conduct in connection with promotion and supply of vacuum cleaners to three elderly customers that was, in all the circumstances, unconscionable contrary to s 51AB of the Trade Practices Act1974 (Cth) and s 21 of the Australian Consumer Law. This was so notwithstanding the customers' voluntary entry into the sale contracts. The normative standard applied in Lux was that of ‘honest and fair conduct free of deception’. Notably, Lux's sales strategy employed a deceptive ruse to gain access to the customer's home and, once entry was gained, a selling technique that was designed to create a sense of obligation to purchase.

Recognition that the supplier of a financial service may engage in conduct that is unconscionable, notwithstanding the recipient's voluntary entry into the contract for the supply of the service, does not make the absence of the exertion of undue influence an irrelevant consideration. Section 12CC(1)(d) invites the court to consider ‘whether any undue influence or pressure was exerted on, or any unfair tactics were used against’ the recipient of the financial service (emphasis added) as one of the factors to be weighed in determining whether, in all the circumstances, the supplier's conduct is unconscionable. The absence of the exertion of undue influence, pressure or unfair tactics bears on the assessment of whether the commercial advantage obtained by the supplier in connection with the supply of the financial service is an unconscientious advantage.

For the same reasons, ASIC's challenge in its second ground to the weight given by the Full Court to the finding that Mr Kobelt did not act dishonestly must be rejected. ASIC argues that, to the extent that notions of moral tainting or obloquy ‘suggest[] a need for dishonesty or something more than the taking advantage of the special disadvantage’ of the recipient, they are unhelpful in applying the statutory standard of unconscionability in the ASIC Act and cognate legislation. The submission does not go anywhere. It may be accepted that conduct in the supply of a financial service may be unconscionable in circumstances in which the supplier's conduct does not involve dishonesty. This is not to say that the absence of dishonesty, or other moral taint, is not a material consideration in determining whether, objectively, the supplier's conduct involves such a departure from accepted community standards in the supply of the financial service as to warrant the characterisation that it is unconscionable.

The Full Court made clear that it approached the determination upon a view that consideration of moral obloquy had a role to play but was not a substitute for the statutory words^. Their Honours correctly took into account the findings that Mr Kobelt acted with a degree of good faith and not dishonestly as among the circumstances to which it was necessary to have regard in determining whether his conduct fell below the statutory norm of conscience.” [Footnotes omitted.] ^[48]

47. Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1; [2019] HCA 18.

48. Ibid at [57]-[60] (Kiefel CJ and Bell J).

186. In understanding the foregoing, the comments of Gageler J (as his Honour the Chief Justice then was) in describing the underlying background to the development of unconscionability as a cause of action and its relationship with the statutorily broader expression is informative as to the principles to apply in dealing with a claim such as that under the relevant statutory provisions. His Honour said:

“GAGELER J. ‘Unconscionable’ is an obscure English word which centuries of use by courts administering equity have transformed into a legal term of art. In Australia, the central concern of a court administering equity in identifying conduct as unconscionable has long been understood to be to relieve against a stronger party to a transaction exploiting some special disadvantage which has operated to impair the ability of a weaker party to form a judgment as to his or her interests.

Section 12CA of the Australian Securities and Investments Commission Act2001 (Cth) (‘the ASIC Act’) gives statutory expression to that equitable conception of unconscionable conduct. The section's prohibition against engaging in conduct in relation to financial services that is ‘unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories’ operates to impose an additional statutory sanction on conduct that is unconscionable in equity. Suggestions that its reference to conduct that is unconscionable within the meaning of the unwritten law imports some more expansive and less precise denotation are contradicted by extrinsic material explaining the precise choice of statutory language and have been properly refuted^.

Section 12CB of the ASIC Act does something more. The section's prohibition against engaging in conduct in connection with the supply or possible supply of financial services ‘that is, in all the circumstances, unconscionable’ is expressed to be ‘not limited by the unwritten law of the States and Territories relating to unconscionable conduct’. Those words make clear that the statutory conception of unconscionable conduct is unconfined to conduct that is remediable on that basis by a court exercising jurisdiction in equity. Furthermore, determination by a court exercising jurisdiction in a matter arising under the section of whether conduct is, in all the circumstances, unconscionable is required by s 12CC to be informed by the numerous considerations specified in that section, each of which has the potential to bear positively or negatively on the characterisation of conduct as conduct that is or is not unconscionable, and each of which must be taken into account if and to the extent that it is applicable in all the circumstances.

Exactly what s 12CB does might be seen in different ways. The section might, on the one hand, be seen to confer statutory authority on a court exercising jurisdiction in a matter arising under it to develop the equitable conception of unconscionable conduct taking into account a range of considerations that are broader than those traditionally taken into account by courts administering equity and that include the considerations specifically identified in s 12CC. The section might, on the other hand, be seen to prescribe a normative standard of conduct, which standard a court exercising jurisdiction in a matter arising under it is required to recognise and to administer having regard to considerations which include those identified in s 12CC. Both perspectives on the operation of the section can be found, sometimes intertwined, in the case law. Examination of the legislative history and pre-history of s 12CB, much of which Edelman J helpfully refers to in his reasons for judgment, yields no real indication of a legislative intention to adopt one view in preference to the other.

The difference between the perspectives is diminished when it is recognised that the Commonwealth Parliament can be taken to have understood that ‘[a]ny standard or criterion will have a penumbra of uncertainty under which the deciding authority will have room to manoeuvre – an area of choice and of discretion; an area where some aspect of policy will inevitably intrude’, that ‘[t]he degree of vagueness or discretion will be affected by what is conceived to be the object of the law and by judicial techniques and precedents’ and that, ‘[g]iven a broad standard, the technique of judicial interpretation is to give it content and more detailed meaning on a case to case basis’. The distinction between a judicially developed standard and a statutory standard developed judicially can in practice be a fine one.

The difference in perspective nevertheless bears on how a court exercising jurisdiction in a matter arising under s 12CB goes about determining whether impugned conduct is, in all the circumstances, unconscionable. For reasons which will become apparent, I consider that identification of the correct perspective bears materially on the resolution of this appeal.

The correct perspective, in my opinion, is that unambiguously adopted by the Full Court of the Federal Court in relation to materially identical provisions in Australian Competition and Consumer Commission v Lux Distributors Pty Ltd. The correct perspective is that s 12CB operates to prescribe a normative standard of conduct which the section itself marks out and makes applicable in connection with the supply or possible supply of financial services. The function of a court exercising jurisdiction in a matter arising under the section is to recognise and administer that normative standard of conduct. The court needs to administer that standard in the totality of the circumstances taking account of each of the considerations identified in s 12CC if and to the extent that those considerations are applicable in the circumstances.

The Commonwealth Parliament's appropriation in s 12CB of the terminology of courts administering equity in the expression of the normative standard which the section prescribes serves to signify the gravity of the conduct necessary to be found by a court in order to be satisfied of a breach of that standard. ‘Unconscionability’, as has been long and well understood, ‘is not a slight matter, and behaviour is only unconscionable where there is some real and substantial ground based on conscience for preventing a person from relying on what are, in terms of the general law, that person's legal rights’. [Footnotes omitted.] ^[49]

49. Ibid at [81]-[88] (Gageler J).

187. As his Honour the Chief Justice said in the above extract, unconscionability is not a slight matter. It requires a real and substantial unconscientious act preventing a person from relying on the person’s legal rights. No conduct of that kind has been disclosed in the current proceedings.

188. As to the misleading and deceptive conduct, the difficulty in the representation and the conduct is that the representation was made in 2016 and the unavailability is said to have occurred in 2017. Further, the unavailability was not based upon any conduct of the lender. It occurred, apparently, because of changes in legislative and policy provisions enacted by the legislature and/or governments of Australia and the People’s Republic of China.

189. It cannot be said that, when the representation was made, it was misleading or deceptive. If conduct is said to be misleading or deceptive, the determination of that question is a question of fact. It is to be objectively determined. ^[50]

     50. Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 at 341-342 (Gummow, Hayne, Heydon and Kiefel JJ); Butcher v Lachlan Elder Realty Pty Limited (2004) 218 CLR 592 at 625.

190. If it is the document that is said to give rise to the representation, then the document must be understood in light of the provisions of clause 188 of the Memorandum, which is set out above. In light of the provisions of that clause, it cannot be said that there was ever an unconditional promise to provide money for construction.

191. Beyond funding the purchase and DA, the money for construction was available as a progress payment. Construction never commenced. No progress payment was due. There has been no breach and no misrepresentation, assuming, without deciding, that the monies were not available as at December 2017.

192. In short, I do not consider that there has been unconscionable conduct which affects the rights of Zhongcheng to sue on its contractual rights, and I do not consider that there has been misleading or deceptive conduct which ameliorates that to which Zhongcheng is entitled.

193. Zhongcheng is the assignee of the lender, RNCA. It has lent the amount previously disclosed, being $14,740,000, principal, and received $5 million in satisfaction of the sale of the Site in compensation for that amount. The defendants owe $9,740,000 plus interest.

194. The Court orders the second and third defendant jointly and severally to pay the plaintiff $9,740,000. Interest is awarded from 23 May 2018 up until judgment and interest after judgment is a matter for the rules. The defendants, being the second and third defendants, shall jointly and severally pay the plaintiff’s costs of and incidental to the proceedings on an indemnity basis.

187. The Court directs the plaintiff to file a minute of the order within seven days of the date of this judgment. Either the second or third defendant may put submissions of no more than five pages as to the correctness or inappropriate nature of any order in the short minutes within a further ten days of the filing of the short minutes. If any such submission is filed by any defendant, the plaintiff may reply within a further ten days in a submission also of no more than five pages.

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Endnotes

Decision last updated: 17 October 2025